Apparel

University of Texas at Dallas Columbia

This report is published for educational purposes only by
students competing in the Fall 2016 UTD Security
Analysis Compition Mariah McHenry, Thomas Flanagan,
Thomas Allen, Joseph Francis

11/09/2016 Ticker: COLM Recommendation: Hold

Price as on 11/09: $56.55 Price Target: $59.22

Earnings/Share
Mar. Jun. Sept. Dec.
2013A $0.15 ($0.1) $0.79 $0.53
2014A 0.32 (0.09) 0.94 0.8
2015A 0.38 (0.09) 1.29 0.91

Market Profile Investment Highlights

52 Week Price $43.56-$62.95
Range We begin our report on Columbia Sportswear Company with a
Average Daily 264,413
Volume Hold recommendation derived from a target price of $59.22. Our
Beta 0.97
Dividend Yield 0.72
recommendation is primarily driven by the following:
(Estimated)
Shares Outstanding 69.8M
Growth is Expected to Occur. Although there is the chance for
Market 3,916.4M potential downturn in 2016, future years are expected to have a
Capitalization
positive growth rate fueled by increased outdoor recreation and
Institutional 38.63% higher disposable income.
Holdings
Insider Holdings 61.33% The Industry has Reached Maturity. Companies within this
Return on Equity 12.1%
niche market have been consistent over past years and the market
has grown very little beyond the expected growth the overall
Valuation Weight Price economy has caused. In order to grow, companies are forced to
Method acquire smaller businesses. This stable industry becomes a safe
Discounted 50% $56 investment, but has little more to offer than what the market has
Cash Flow
valued it at.
EV/EBITDA 50% $62.44
Multiple The Market has Consistently Valued the Company in Recent
Implied $59.22 Months. The price of Columbia has fluctuated, but has remained
Value
relatively constant around the target price.
 Securities Analysis Competition Fall 2016 November 8, 2016

Business Description
Columbia Sportswear Company designs and distributes apparel,
% of Sales by Brand 2016 footwear, equipment, and accessories. As a global corporation,
Brand % Columbia is geographically segmented across much of North
Columbia 81.81% and South America, Africa, and Asia.
SOREL 6.58%
prAna 6.73%
Mountain 4.38% Main Brands
Hardwear Columbia Is the largest brand offering that comprises of
Other 0.49% athletic and casual products including apparel, footwear,
Source: Team Research accessories, and equipment
SALES BY PRODUCT prAna Is the brand in apparel and accessories that focuses on
2016 style with attention to sustainable materials and production
Foot processes
wear Sorel Is the brand for premium apparel and accessories and
20%
focuses on female consumers
Mountain Hardwear Is another premium brand
sellingapparel, accessories, and equipment for athletes with a
focus on mountain climbing products

Products
Apparel & Accessories - Athletic clothing and accessories
Apparel, Accessories and Equipment
designed for outdoor activities such as skiing, snowboarding,
80% hiking, climbing, mountaineering, camping, hunting, fishing,
trail running, water sports, and adventure travel
Source: Team Research
Equipment - Backpacks, sleeping bags, coolers, bags, and
other outdoor equipment
Footwear - Hiking boots, trail running shoes, rugged cold
weather boots, sandals, casual shoes

Company Strategies
Working Capital Utilization Most of the companys capital
is invested in short-term working capital assets, approximately
Segment Percent 68% of total assets. This is aimed at minimizing inventory
United States 62.6% management to attempt to eliminate inventory risk that
Latin America and 20.2% frequently plagues apparel companies due to varying seasonal
Asia Pacific
Europe, Middle 10.0% demands. Much effort is spent in forecasting demand for
East and Africa products to ensure profitability.
Canada 7.2%
Source: Capital IQ
2
 Security Analysis Competition Fall 2016 November 9, 2016

Product Differentiation - Choosing to focus research on

Advertising
(in millions of $)
innovative ideas and ensuring they are commercially viable
pushes Columbia beyond its competitors. This research is not
$150.00 limited to one area and expands to chemistry, biochemistry,
engineering, industrial design, materials research, and graphic
$100.00
design fields. It can be said that this research and focus on
$50.00 innovation in other areas allows Columbia to differentiate its
products from competitors and stand out in the eyes of
$0.00 consumers. This differentiation appears to work in Columbias
2013 2014 2015
favor historically. For example, in August of 2016, Columbia
Source: Team Research
won a lawsuit against another apparel company for
infringement on its HeatWave products by using Columbias
patented Omni-Heat Reflective products. In addition, Columbia
diversifies its product line by region to ensure the needs of
STORES consumer are met. Recently, its focus has been on increasing
Employee product demand in Europe by expanding the product range.
E-
Stores
1%
commerce Marketing - Marketing is a vital part of the strategy for
4% Columbia. Marketing enhances its competitive position,
increases global alignment, builds brand equity, relevance,
awareness, and most importantly, stimulates consumer demand.
Approximately 5.2% of net sales is spent in marketing
programs. The more that is put into marketing, the more
consumers will be aware of the brand.
Distribution - The majority of sales are created through
Outlet
Stores wholesale channels, direct-to-consumer channels, independent
Branded Retail Stores 78% distributers, and licenses. Columbia has sales in four different
17%
geographic segments: the United States, Latin America and
Source: Team Research
Asia Pacific, Europe Middle East and Africa, and Canada.
These different means of distribution ensure that the company
is not subject to any particular market shock that could cause
disruptions in sales.

Management & Culture

Name Position Columbias executive board consists of CEO, COO, CFO,
Gert Boyle Chairman of presidents of the various brands, one director, and 19 vice
the Board presidents, including the vice presidents of the different regions.
Tim Boyle CEO, This leadership team brings a variety of managerial and
Director leadership experience which has helped Columbia be successful
Bryan President and will continue to do so.
Timm and COO
Source: Proxy Statement

3
 Security Analysis Competition Fall 2016 November 9, 2016

EXECUTIVE Timothy Boyle has been CEO of Columbia since 1980 and
COMPENSATION served as Interim Executive Vice President of Global Sales and
Non-Equity Other Marketing since August 2012. Because he has held multiple
Incentive Compensation jobs with different roles in the company, he has gained vast
2%
Compensation experience. This grants him superior knowledge on how
45%
Columbia operates and a greater understanding of the
Salary
34% challenges the company faces.

SWOT Analysis
Strengths Columbias focus on innovation is probably one of
its biggest strengths. This technology pushes Columbia past its
competitors. Its diverse range of technology also helps
Restricted Columbia survive no matter the environment.
Securities Options
Stock Weaknesses Excess inventories pose a risk to the company.
Award
9%
10% Although there has been modifications to the supply process to
Source: Team Research
remedy this, the chance of having an excess inventory still
poses a potential weakness. Another potential weakness is their
highly customized information system. Due to the nature of
SWOT this system, there are a limited number of specialists who can
Strengths fix the system in the event of a crash.
4
3 Opportunities The direction the industry is expected to go
2 highly emphasizes direct-to-consumer sales. Columbia, with its
1
Threats 0 Weaknesses high reputation, has historically had higher than the industry
average direct-to-consumer sales. This represents an
opportunity that Columbia can continue to pursue.
Opportunities Threats Global economic volatility can pose a threat to the
entire industry. Certain industries, such as oil, leather, natural
Source: Team Research down, and cotton are historically volatile. Since these are the
main inputs for a fair number of Columbias products, these
markets pose a potential threat. In addition, when disposable
income decreases in a poor economic environment, the number
of sales will decrease posing an additional risk with volatile
global markets. Since Columbia is a multinational corporation,
exchange rate fluctions also pose a potential threat. Weather
conditions also pose a potential threat as the increase of
incliement weather or the unpredictability of weather cause less
Source: Capital IQ demand for outdoor activities. With that being said, however,
these threats affect the rest of the industry and are not unique to
Columbia.

4
 Security Analysis Competition Fall 2016 November 9, 2016

Industry Overview and Competitive

Positioning
Intensity of
Rivalry
5 Intensity of Rivalry - 4
4
Threat of 3 Bargaining Columbia operates in an extremely competitive market being an
2
New
Entrants
1
Power of
Suppliers
international corporation. Columbias competition ranges from
0
large brands to small local brands with strong customer bases.
Threat of
Bargaining Because of Columbias manufacturing and distribution
Power of strategies, they are in extreme competition for market share,
Substitutes
Buyers
manufacturing capacity, and customer loyalty. As the market
reaches into its mature stage, there is an increase in rivalry
because the only way to improve revenues is to expand its
Source: Team Research market share, by definition increasing rivalry. In addition,
consumers can easily change between products; Columbia has
attempted to remedy this by increasing its product
differentiation by patenting new technologies.

Bargaining power of suppliers 4

Columbia uses contracted manufacturers outside the United
States. Columbia does not use long term volume commitments
with its contracted manufacturers. This gives higher risk of
pricing changes and production capacity. There is a
concentrated number of suppliers as well. For example, their
largest apparel supplier accounts for 11% of the 2015 global
Hiking & Outdoor Industry Stats production, and their top five footwear supplier has around 73%
Revenue $4.1bn of the global production.
Annual 1.8%
Growth 10-15 Bargaining power of buyers 3
Annual 2% Columbia does not have long term contracts with wholesale
Growth 15-20
customers, but does have them with distributors. In the highly
Profit $161.7m
competitive market, if a major distributor decides to discontinue
Wages $454.3m
Businesses 3,150 holding Columbias products, there would be significant losses.
Source: IBIS With that being said, however, Columbia does have higher than
average direct-to-consumer sales decreasing the buying power
of distributers. The average consumer has relatively low
bargaining power. There are many buyers in the apparel
industry. Although there is a smaller number in the outdoor
niche, there are still more than enough consumers for the
company to thrive.

5
 Security Analysis Competition Fall 2016 November 9, 2016

Threat of substitutes - 5
Because of the highly competitive nature of the apparel
Highest Growth Outdoor
industry, there is a high risk of substitutes. Columbias
Activities from 2008-2060 competition is often larger companies and brands who have
equal or greater distribution channels. Because Columbia
distributes through major distributers in many cases (although
not always with online and retail stores), the competing
substitutes are available to customers at the point of purchase
increasing the likelihood of substitution. Even within the
outdoor niche, there are a high number of competitors. Within
this niche, the market has arguably been correcting itself by
Source: NSDA acquiring smaller brands to decrease the number of substitutes.

Threat of new entrants - 1

Lowest Growth Outdoor
Activities from 2008-2060
Although there are low barriers to enter from a regulator
standpoint, the maturity of the industry makes new entrants
unlikely to succeed. Reputation playes a key role in this
industry and new entrants will not have the recognition
recquired to make a profit. In addition, the intense competition
creates demand for low cost products, which can only be
obtained through economies of scale. Patented technology
further makes the threat of new entrants low.

Source: NSDA Outdoor Recreation Trends

The number of Americans participating in outdoor sports and
activities is expected to rise to 19.4% of the population in 2020,
Disposable Income an anuualized increase of 0.5%. This is fueled by recent studies
showing the health benefits of outdoor activities. This is
50,000.00 4.00
expected to increase demand for industry products.
40,000.00 3.00
30,000.00
2.00 In addition to health benefits, the green movement is likely to
%
$

20,000.00
1.00
trigger growth in this secter. The number of vistors to national
10,000.00
and state parks is expected to increase over the next few years.
0.00 0.00
This is caused by an expected increase in disposable income
2014
2018
2022

that allows Americans to go on more vacations. Disposable

Source: IBIS income is expected to grow at an annualized rate of 2% until
2020.

6
 Security Analysis Competition Fall 2016 November 9, 2016

Competitive Pressures
As indicated earlier, Columbia is facing severe threats from
competitors. There have been a number of acquisitions as more
and more stores recognize the potential for the outdoor industry.
The number of companies forecast at an annualized rate of
0.4% as more companies are eliminated from the market by not
being competitive enough.

This heavily implies that the industry is in the mature stage of

its life cycle. Industry growth has slowed, and instead, the
industry is now seeing consolidation to reach equilibrium
Source: IBIS market saturation. Although there is expected to be slight
growth in the industry, it is expected to reamin relatively steady
until 2020.

Valuation Weight Price

Investment Summary
Method
Discounted 50% $56.06 We recommend a Hold position on Columbia Sportswear
Cash Flow Company with a target price of $59.22. This valuation arises
EV/EBITDA 50% $62.44 from the use of a Discounted Cash Flow analysis and Relative
Multiple Valuation. This recommendation is based on future growth, low
Implied $59.22 debt utilization, and the belief that it is undervalued based on the
Value financial analysis done.
Source: Team Research
Growth Rate: Due to various economic factors, Columbia is
expected to make an upswing in revenue of an estimated 8% per
year.

Low Debt: With the high likelihood of interest rates rising in

Historic Stock Price
coming months, Columbias low use of debt will be a strong suit.
Without having to worry about refinancing at a higher rate,
Columbia will not run into potential issues about higher costs of
debts and the potential of not getting another deal. This places
them in a better position than competitors who have significantly
more amounts of debt.

Correctly Valued: Although there has been a recent decline in

Source: Yahoo Finance
the stock price due to the release of third quarter earnings, the
market has the stock closly valued to the implied valuation with
a slight difference, which at this point in time is a 2% change.

7
 Security Analysis Competition Fall 2016 November 9, 2016

Financial Analysis
Financial Ratio Analysis
For the Fiscal Period Ending 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
Profitability
Return on Assets % 6.7% 6.0% 5.7% 7.3% 8.7% 8.6% 9.2% 10.1% 9.9% 9.5%
Total Revenue Return on Capital % 8.6% 7.6% 7.3% 9.5% 11.3% 12.4% 13.4% 14.8% 14.4% 13.4%
Return on Equity % 10.0% 8.9% 7.7% 10.9% 13.0% 11.1% 11.9% 13.1% 12.8% 12.0%
(in Millions Dollars) Margin Analysis
Gross Margin % 43.4% 42.9% 44.1% 45.5% 46.1% 46.9% 47.2% 47.3% 47.3% 47.3%
Net Income Margin % 6.1% 6.0% 5.6% 6.5% 7.5% 7.4% 7.8% 8.0% 8.1% 8.1%
EBITDA Margin % 11.0% 10.7% 10.8% 12.0% 13.3% 13.1% 13.4% 13.5% 13.5% 13.5%
Asset Turnover
0 Total Asset Turnover 1.3x 1.2x 1.1x 1.2x 1.3x 1.2x 1.2x 1.3x 1.2x 1.2x
Fixed Asset Turnover 7.2x 6.5x 6.2x 7.4x 8.0x 7.4x 7.9x 8.9x 9.2x 9.1x
500.0 Accounts Receivable Turnover 5.2x 4.9x 5.3x 6.5x 6.5x 6.0x 6.0x 6.0x 6.0x 6.0x
Inventory Turnover 2.8x 2.6x 2.7x 3.2x 2.9x 2.8x 2.8x 2.8x 2.8x 2.8x
1,000.0 Short Term Liquidity
Current Ratio 3.9x 4.5x 4.2x 3.4x 3.4x 3.6 3.6 3.5 3.7 3.9
1,500.0 Avg. Days Sales Out. 70.2 75.2 69.4 56.6 56.2 59.6 57.0 55.6 58.2 59.3
Avg. Days Inventory Out. 129.4 139.9 134.3 113.7 125.0 135.3 122.4 119.1 124.7 127.1
2,000.0 Long Term Solvency
LT Debt/Equity NA NA NA 1.2% 1.1% 1% 1% 1% NA NA
2,500.0 Growth Over Prior Year
Total Revenue 14.2% (1.4%) 0.9% 24.7% 10.7% -3.12% 12.84% 19.05% 7.82% 3.73%
Source: Capital IQ
Columbia Sportswear will experience a slight decline in sales
growth in 2016; however, due to positive macroeconomic
trends, their net sales growth will be positive again. As a result,
Margin Over Time the growing number of consumers attracted to the athletic
15.0% apparel industry will continue to maintain positive EBITDA
10.0% and net income margins.
5.0%
0.0% The majority of Columbia Sportswears assets involve working
capital assets. In order to further improve inventory
management and to better manage the risk of customer
EBITDA Margin % receivables, Columbia Sportswear is implementing a revised
Net Income Margin % ERP system to improve working capital management among
Source: Capital IQ other things. If successful, Columbia should be able to limit
inventory risk and potentially even improve their DSO and
Capital Structure Total average days in inventory ratio. Columbia Sportswear has
Debt
Total 1% acknowledged that there will be an adjustment period for the
Minority company during the implementation process. We believe that
Interest
1%
the ERP implementation will allow turnover ratios to stay
constant amid sales growth and increased competition for
Total market share.
Comm
on
Equity The capital structure of Columbia consists of roughly 1% debt
98%
and 99% equity which is quite rare in todays low interest rate
environment. Their low debt usage allows Columbia to

8
Source: Capital IQ
 Security Analysis Competition Fall 2016 November 9, 2016

effectively capitalize on potential investment opportunities and

Terminal Value 4,273
PV of Terminal Value $2,901
stay very solvent which will attract debt investors when needed.
PV of FCFF $745 Our projections indicate that Columbia Sportswear will be able
Enterprise Value $3,646
Less Debt ($17)
to maintain their financial metrics into the foreseeable future.
Less Minority Interest ($16) The combination of low debt usage and ability to maintain
Plus Cash $370
Equity Value $3,984 margins in a competitive industry should limit financial and
Diluted Shares Outstading 71.06 bankruptcy risk and attract equity investors.
Implied Share Price $56.06
Source: Team Research

Cost of Capital Weights Valuation

Risk Free Rate 2.18%
Beta 0.97
Discounted Cash Flow (DCF): We projected the next five
Market Risk Premium 6.07%
Cost of Equity 8.06% 99.6%
years FCFF based off of our model, assuming a terminal growth
After-tax Cost of Debt 5.03% 0.4% rate equal to the 20-year treasury bond, and an effective tax rate
WACC 8.05% of 28.20%. This gives an implied valuation of $56. This will be
Source: Team Research weighted at 50%.
Relative Valuation - EV/EBITDA Multiple 2016E
(LTM) Weighted Average Cost of Capital (WACC): For our WACC
EBITDA Multiple from Peer 13.6x
group calculation, we used a risk free rate of 2.18%, the 20-year
EBITDA 2016E
Implied Enterprise Value
$301
$4,100
treasury bond, and a 6.07% market risk premium. This market
Share Price Calculation risk premium was calculated through Damodarans apparel
Enterprise Value $4,100 industry cost of equity and industry beta, working backwards
Less Debt ($17) using CAPM to calculate for market risk premium. We used the
Less Minority Interest
Plus Cash
($16)
$370
market value of Columbias equity for the weight, to more
Equity Value $4,437 accurately represent the companys capital structure. For debt,
Diluted Shares 71.06 Columbia has one note of long term debt used exclusively for
Outstanding
Implied Share Price $62.44
its joint venture in China, with an annual interest rate of 7%.
Source: Team Research Based on the average effective tax rate of 28.20%, CAPM, and
each form of capitals respective weight, we calculated a WACC
Relative Valuation - P/E Multple 2016E (NTM)
of 8.05%.
Primary Peer Group P/E

V.F. Corporation (NYSE:VFC)

multiple
16.25
Relative Valuation: Our set of companies includes Columbias
Under Armour, Inc. (NYSE:UA) 48.79 competitors in the apparel industry, specifically emphasizing
Secondary Peer Group P/E
multiple
outdoor and active apparel companies. Our relative valuation
DSW Inc. (NYSE:DSW) 13.76 emphasizes the EV/EBITDA multiple because of its ability to
Deckers Outdoor Corp. 12.08
(NYSE:DECK) compare companies with differing levels of financial leverage.
Gildan Activewear Inc. (TSX:GIL) 14.88
Lululemon Athletica Inc. 25.44
We have included a primary and a secondary peer group in the
(NasdaqGS:LULU) determination of the EV/EBITDA multiple. Valuation using the
Primary Peer Group P/E Multiple 32.52
Secondary Peer Group P/E Multiple 16.54
EV/EBITDA multiple will be weighted 50%. The implied value
Weighted Average P/E multiple 22.932 based on the EV/EBITDA multiple is $62.44.
Columbia Diluted EPS 2.41
Implied Share Price $55.27
Source: Team Research
9
 Security Analysis Competition Fall 2016
Capital Structure Breakdown
Source: Capital IQ
Clothing and Footwear as % of
Personal Consumption
Source: BofA Merrill Lynch
November 9, 2016
Investment Risk
Financial Risk:
Low Usage of Debt: With historically low interest rates, it is a
concern to investors as to why Columbia has not taken
advantage of said rates. Utilizing this low cost option would
decrease the overall weighted cost of capital. With the
expectations that rates will soon rise in the future, it can be a
smart move from Columbia to ensure that it doesnt face the
problem of refinancing debt at a more expensive rate.
Additional Tax Liabilities: Because Columbia is an international
company, there are many estimations and assumptions about the
future actions of local tax authorities. This increases the chance
of unfavorable audit findings in different countries and may
result in fines or an increase in taxes. Columbia does accrue for
uncertain tab positions to remedy this.
Market Risk:
Changes in Disposable Income: Disposable income is expected
to increase. It would be problematic in times of economic
distress. Economic uncertainty increases the prospect that the
financial health of Columbias customers may be unwilling or
unable to spend on money on merchandise. In past years, this has
been seen with a decrease in spending on products industry wide.
Operational Risk:
Upgrades to Business Processes and Information Technology:
The increase in technology and information systems is projected
to decrease costs in the long run. It would increase the efficiency
of the corporation overall by decreasing the likelihood of
mistakes occurring and wasting funds.
10
 Security Analysis Competition Fall 2016 November 9, 2016

Appendices

Table of Contents

Appendix 1: Management & Governance

Appendix 2: Shares Outstanding Ownership
Appendix 3: Projected Growth
Appendix 4: Income Statement
Appendix 5: Balance Sheet
Appendix 6: Statement of Cash Flows
Appendix 7: Balance Sheet and Cash Flow Statement Drivers
Appendix 8: Expense Assumptions
Appendix 9: Cost of Capital
Appendix 10: Discounted Cash Flow Analysis
Appendix 11: Comparable Companies
Appendix 12: Comprhensive Ratio Analysis
References

11
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 1: Management and Governance

Company Executives
Name Title Job Functions Board memberships

Amos CPA, Erik S. Vice President of Tax & Treasury Other Key Executive -
Blackford, Michael W. Vice President of Columbia Brand Other Key Executive -
Design and Innovation
Boyle, Joseph P. Senior Vice President of Columbia Senior Key Executive, Other Key -
Brand Merchandising & Design Executive
Boyle, Timothy P. Chief Executive Officer and Director Chief Executive Officer, President, Columbia Sportswear Company
Member of the Board of Directors, (NasdaqGS:COLM), Craft Brew
Head of Sales, Head of Marketing Alliance, Inc. (NasdaqGS:BREW),
Northwest Natural Gas Company
(NYSE:NWN), Reed College, Widmer
Brothers Brewing Company (Prior)
Bragdon, Peter J. Chief Administrative Officer, Executive Senior Key Executive, Secretary, University of Oregon
Vice President, General Counsel and Chief Administrative Officer, Chief
Secretary Legal Officer
Craig, Joseph R. Vice President of Apparel Sales - Other Key Executive, Sales -
United States Professional
Cusick, Thomas B. Chief Financial Officer, Executive Vice Chief Financial Officer, Senior Key Barrett Business Services Inc.
President of Finance and Treasurer Executive, Chief Accounting Officer, (NasdaqGS:BBSI)
Treasurer, Controller
Dougherty, Daniel A. Vice President of Global Distribution Other Key Executive -
Fogliato, Franco Senior Vice President and General Senior Key Executive, Sales -
Manager of EMEA Region Professional
Higgins, Patricia E. Vice President of E-Commerce Other Key Executive -
Hirt CPA, CPIM, Michael Chief Information Officer and Vice Senior Key Executive, Chief -
President Information Officer
Hopcus, Russell B. Senior Vice President of Sales - North Senior Key Executive, Sales -
America Professional
Kerslake, Scott W. Chief Executive Officer of PrAna Unit CEO, Unit President -
Brand, President of PrAna Brand and
President of Prana Living, LLC
Kulok, Lisa A. Senior Vice President of Global Supply Senior Key Executive, Other Key -
Chain Operations Executive, Operations Professional
Lawner, David Interim Senior Vice President Retail - Senior Key Executive -
North America and EMEA
Luther, Richelle T. Chief Human Resource Officer and Senior Key Executive, Head of -
Senior Vice President Human Resources
Morse, Douglas H. Chief Business Development Officer, Senior Key Executive, Head of -
Vice President and General Manager of Corporate Development, Other Key
LAAP Distributors Executive
Nenow, Mark J. President of SOREL Brand Unit President, Other Key Executive -
Parham, Ronald A. Senior Director of Investor Relations Head of Investor Relations, Head of -
and Corporate Communications Corporate Communications
Rauch, Peter M. Chief Accounting Officer and Vice Senior Key Executive, Chief -
President Accounting Officer
Redsun, Stuart B. Chief Marketing Officer and Senior Senior Key Executive, Head of -
Vice President Marketing
Swanson, Jim A. Vice President of Finance Other Key Executive, Finance and -
Accounting Professional
Timm, Bryan L. President and Chief Operating Officer President, Chief Financial Officer, Umpqua Bank, Umpqua Holdings
Chief Operating Officer, Senior Key Corporation (NasdaqGS:UMPQ)
Executive, Chief Accounting Officer,
Treasurer
Tooze, Jeffrey W. Vice President of Global Customs & Other Key Executive -
Trade
Woodside, Stephen P. Senior Vice President of Global Senior Key Executive, Other Key -
Sourcing and Manufacturing Executive

12
 Security Analysis Competition Fall 2016 November 9, 2016

Board of Directors
Name Title Years on Board Other Company Affiliations
Boyle, Gertrude Chairman of the Board 1970-Present -
Boyle, Timothy P. Chief Executive Officer and Director 1978-Present Columbia Sportswear Company
(NasdaqGS:COLM)
Babson J.D., Stephen E. Independent Director, Chairman of 2002-Present Endeavour Capital, Inc., Stoel Rives LLP
Compensation Committee and Member of (Prior)
Nominating & Corporate Governance
Committee
Bryant, Andy D. Independent Director, Chairman of 2005-Present Intel Corporation (NasdaqGS:INTC)
Nominating & Corporate Governance
Committee and Member of Audit Committee
Wasson, Malia H. Independent Director, Chairman of Audit 2015-Present U.S. Bancorp (NYSE:USB), U.S. Bank
Committee and Member of Nominating & National Association, U.S. Bancorp, Prior to
Corporate Governance Committee being Acquired by Firstar Bancorp. (Prior)
Albers, Murrey R. Independent Director, Member of 1993-Present -
Nominating & Corporate Governance
Committee and Member of Compensation
Committee
Bany, Sarah A. Director 1988-Present -
George, Edward S. Independent Director, Member of Audit 1989-Present -
Committee and Member of Nominating &
Corporate Governance Committee
Klenz, Walter T. Independent Director, Member of 2000-Present Beringer Wine Estates Holdings, Inc. (Prior),
Compensation Committee and Member of Foster's Group Pty. Ltd. (Prior), Treasury Wine
Nominating & Corporate Governance Estates Americas Company (Prior)
Committee
Nelson, Ronald E. Independent Director, Member of Audit 2011-Present -
Committee and Member of Nominating &
Corporate Governance Committee
Stanton BA, MBA, John Independent Director, Member of 1997-Present Clearwire Corporation, The Seattle Mariners,
William Nominating & Corporate Governance Trilogy Equity Partners, Trilogy International
Committee and Member of Compensation Partners LLC, Fido Inc. (Prior), Omnipoint
Committee Corporation (Prior), T-Mobile US, Inc.
(NasdaqGS:TMUS) (Prior), Western Wireless
Corporation (Prior)

13
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 2: Shares Outstanding Ownerships

14
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 3: Projected Revenue Growth

In order to forecast Columbias sales revenue, we implemented a vector-autoregression

(VAR). This is specified in the following model:

Y is a mx1 vector of endogenous variables and is a function of its lagged values.

We considered several alternative estimators such as ordinary least squares (OLS),
autoregressive distributed lag (ARDL), and autoregressive integrated moving average
(ARIMA). We chose VAR based on several criteria. Foremost, restricting data to years
prior to 2014, it was best able to predict actual values in 2014 and 2015. Secondly, it has
unique forecasting attributes that make it possible to obtain forecast variances. This
allows us to construct a 95% confidence interval of our forecasts. Other estimators
require strict assumptions about the future values of exogenous variables which prohibit
the construction of confidence intervals. Third, this model has the lowest Akaike
information criterion among the models (Akaike 2011). Fourth, it produced the highest t
statistics (see graph). Fifth, it assumes all variables are endogenous, thus it captures the
interdependence of variables. The outdoor clothing industry revenues not only affects
Columbias revenue but is also affected by Columbias revenue. Finally, the model
effectively eliminates all serial autocorrelation among variables. In addition to the
criterion based on our specific case, there are a number of articles which speak to the
qualities of VAR such as Brooks and Tsolacos paper which examines forecasts of retail
rents:
The VAR methodology has certain advantages. It avoids the often arbitrary choice of
identifying restrictions of structural econometric models. The simultaneity problem of
multiequation structural models is not an issue with VARs, as there are no concerns
regarding which variables should be treated as exogenous or endogenous. Overall, VARs
are more flexible than are single estimation techniques and are simpler to specify and to
work with than simultaneous equation models. VARs have received attention owing to
the belief that unrestricted VARs would perform better in forecasting than would
structural multiple-equation models (Litterman, 1986; Sims, 1980).
Beforehand, all variables are transformed into their percent difference from the previous
year (this also helps deal with serial autocorrelation). Therefore, we are effectively
forecasting the growth of sales. Additionally, this transformation eliminates some auto-
correlation.
For variables, we included Columbias revenue and VF corp, a major competitors
revenue fetched from compustat global. We then also included outdoor industry revenue
as defined by IBIS. This industry includes in addition to Columbia, Patagonia, VF corp,
and REI. We used this industrys revenue. We also used the variables that IBIS cited as
15
 Security Analysis Competition Fall 2016 November 9, 2016

revenue drivers such as Unemployment, Disposable Income, Consumer Confidence, and

Recreational expenditure.

The forecast predicts a negative sales growth in 2016 which is consistent with the 3 rd
quarter report that cites a decline in sales revenue by 3%. However, it predicts positive
sales growth in 2017 and 2018. The nature of forecast variance that depends on the
distance from the sample values makes it such that the confidence interval widens as time
increases. However, the interval in 2017 and 2018 does indicate positive growth.

16
 Security Analysis Competition Fall 2016 November 9, 2016

(1)
ColumbiaRev

L.ColumbiaRev 0.485***
(6.98)

L.IndustryRev 0.0289***
(8.82)

L.ConsumerConfi 0.00247***
(7.25)

L.Unemployment 0.0172**
(2.90)

L.DiposableIncome -0.0564***
(-14.69)

L.RecreationExped -0.0355***
(-8.37)

_cons 0.109***
(14.30)
N 9

t statistics in parentheses
*
p < 0.05, ** p < 0.01, *** p < 0.001

17
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 4: Income Statement

18
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 5: Balance Sheet

19
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 6: Statement of Cash Flows

20
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 7: Balance Sheet and Cash Flow Statement Drivers

CapEX
0.00%
0 1 2 3 4 5 6 7 8 9
-0.50%

-1.00%
y = 0.0076ln(x) - 0.0414
-1.50%

-2.00%

-2.50%

-3.00%

-3.50%

-4.00%

-4.50%

CAPEX: Used a trend line logarithmic function to smooth out the decreasing CapEX/Previous years
Revenue. CapEX is not entirely contributed of PPE, and as a percentage of revenue has decreased over
the past three years.

All other drivers are described in the Balance Sheet and Cash Flow Statement.

21
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 8: Expense Assumptions

COGS: Used a trend line exponential function to smooth out the decrease COGS/Revenue percentage
due to internal investment in ERP system.

All other expenses are described in the Income Statement.

22
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 9: Cost of Capital

Cost of Capital Weights

Risk Free Rate 2.18%
Beta 0.97
Market Risk Premium 6.07%
Cost of Equity 8.06% 99.6%
After-tax Cost of Debt 5.03% 0.4%
WACC 8.05%

Terminal Growth Rate

1.60% 1.80% 2.00% 2.18% 2.40% 2.60%
8.50% 48.94 50.02 51.17 52.26 53.68 55.07
WACC

8.25% 50.69 51.87 53.12 54.31 55.87 57.39

8.05% 52.19 53.45 54.79 56.08 57.76 59.40
7.75% 54.63 56.03 57.53 58.97 60.86 62.72
7.50% 56.84 58.38 60.03 61.62 63.72 65.79

Appendix 10: Discounted Cash Flow Analysis

DCF Model 2016E 2017E 2018E 2019E 2020E

EBIT 250 295 362 391 405
Taxes (70) (83) (102) (110) (114)
NOPAT 179 212 260 281 291
Depreciation 52 54 57 60 63
Net change in Working Capital 46 (60) (104) (50) (26)
Capital Expenditures (71) (66) (70) (80) (83)
FCFF 206 140 142 211 246
PV of FCFFs 745

Terminal Value 4,273

PV of Terminal Value 2,901
PV of FCFF 745
Enterprise Value 3,646
Less Debt (17)
Less Minority Interest (16)
Plus Cash 370
Equity Value 3,984
Diluted Shares Outstanding 71.06
Implied Share Price $ 56.06

23
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 11: Comparable Companies

24
 Security Analysis Competition Fall 2016 November 9, 2016

Primary Peer Group 40%

Columbia
Key Revenue Drivers Sportswear V.F. Corporation Under Armour
% of Revenue in the US 63% 64% 82%
% of Revenue from Athletic Apparel, equipment, and
accessories 78% 74% 82%
Primary Distribution Method Wholesale Wholesale Wholesale
Direct-to- Direct-to-
Secondary Distribution Method Direct-to-Consumer Consumer Consumer
Financial Metrics
EBITDA Margin 13% 16% 12%

Secondary Peer Group 60%

Lululemon
Key Financial Columbia Athletica Gildan Deckers Outdoor DSW,
Metrics/Characteristics Sportswear Activewear Brands Inc.
Revenue Size $2,359.00 $2,194.00 $2,500.50 $1,834.90 $2,678
EBITDA Margin 12.80% 20.20% 20.50% 12.90% 9.30%
Market Capitalization $3,902.90 $7,854.00 $5,881.30 $1,638.50 $1,685
ROIC 11% 21% 7% 10% 14%

Company Name TEV/EBITDA Market Total LTM Total NTM LTM

LTM - Latest Capitalization Enterprise Revenue Forward EBITDA
Latest Value Latest P/E Margin %
(Capital IQ)
Gildan Activewear Inc. 13.1x 5,829.4 6,467.3 2,500.5 14.88x 20.5%
(TSX:GIL)
Under Armour, Inc. 23.0x 12,270.5 13,164.3 4,690.7 48.79x 12.2%
(NYSE:UA)
Lululemon Athletica 16.5x 7,866.5 7,331.1 2,194.0 25.44x 20.2%
Inc. (NasdaqGS:LULU)
V.F. Corporation 12.3x 22,362.7 24,713.3 12,368.8 16.25x 16.3%
(NYSE:VFC)
DSW Inc. (NYSE:DSW) 6.1x 1,700.6 1,534.8 2,677.8 13.76x 9.3%
Deckers Outdoor Corp. 7.8x 1,639.5 1,839.8 1,834.9 12.08x 12.9%
(NYSE:DECK)

Columbia Sportswear 12.6x 3,970.5 3,786.5 2,359.0 19.92x 12.8%

Company
(NasdaqGS:COLM)

Summary Statistics TEV/EBITDA Market Total LTM Total NTM LTM

LTM - Latest Capitalization Enterprise Revenue Forward P/E EBITDA
Latest Value Latest (Capital IQ) Margin %
High 23.0x 22,362.7 24,713.3 12,368.8 48.79x 20.5%
Low 6.1x 1,639.5 1,534.8 1,834.9 12.08x 9.3%
Mean 13.1x 8,611.5 9,175.1 4,377.8 21.87x 15.2%
Median 12.7x 6,847.9 6,899.2 2,589.1 15.57x 14.6%

Primary Peer Group

Average (40%) 17.7x 17316.60 18938.80 8529.75 32.52 14.25%
Secondary Peer Group
Average (60%) 10.9x 4259.00 4293.25 2301.80 16.54 15.73%

TEV/EBITDA Multiple 13.6x

25
 Security Analysis Competition Fall 2016 November 9, 2016

Appendix 12: Comprehensive Ratio Analysis

Financial Ratio Analysis

For the Fiscal Period Ending 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
Profitability
Return on Assets % 6.7% 6.0% 5.7% 7.3% 8.7% 8.6% 9.2% 10.1% 9.9% 9.5%
Return on Capital % 8.6% 7.6% 7.3% 9.5% 11.3% 12.4% 13.4% 14.8% 14.4% 13.4%
Return on Equity % 10.0% 8.9% 7.7% 10.9% 13.0% 11.1% 11.9% 13.1% 12.8% 12.0%
Margin Analysis
Gross Margin % 43.4% 42.9% 44.1% 45.5% 46.1% 46.9% 47.2% 47.3% 47.3% 47.3%
Net Income Margin % 6.1% 6.0% 5.6% 6.5% 7.5% 7.4% 7.8% 8.0% 8.1% 8.1%
EBITDA Margin % 11.0% 10.7% 10.8% 12.0% 13.3% 13.1% 13.4% 13.5% 13.5% 13.5%
Asset Turnover
Total Asset Turnover 1.3x 1.2x 1.1x 1.2x 1.3x 1.2x 1.2x 1.3x 1.2x 1.2x
Fixed Asset Turnover 7.2x 6.5x 6.2x 7.4x 8.0x 7.4x 7.9x 8.9x 9.2x 9.1x
Accounts Receivable Turnover 5.2x 4.9x 5.3x 6.5x 6.5x 6.0x 6.0x 6.0x 6.0x 6.0x
Inventory Turnover 2.8x 2.6x 2.7x 3.2x 2.9x 2.8x 2.8x 2.8x 2.8x 2.8x
Short Term Liquidity
Current Ratio 3.9x 4.5x 4.2x 3.4x 3.4x 3.6 3.6 3.5 3.7 3.9
Avg. Days Sales Out. 70.2 75.2 69.4 56.6 56.2 59.6 57.0 55.6 58.2 59.3
Avg. Days Inventory Out. 129.4 139.9 134.3 113.7 125.0 135.3 122.4 119.1 124.7 127.1
Long Term Solvency
LT Debt/Equity NA NA NA 1.2% 1.1% 1% 1% 1% NA NA
Growth Over Prior Year
Total Revenue 14.2% (1.4%) 0.9% 24.7% 10.7% -3.12% 12.84% 19.05% 7.82% 3.73%

26
 Security Analysis Competition Fall 2016 November 9, 2016

References
Akaike, Hirotugu. "Akaikes Information Criterion." International Encyclopedia of Statistical Science.
Springer Berlin Heidelberg, 2011. 25-25.

Alvarex, Andrew. IBIS World Industry Report )D4378: Hiking & Outdoor Equipment Stores in the
US. IBIS World. September 2015. Retrieved 26 Oct. 2016.

Brooks, Chris, and Sotiris Tsolacos. "Forecasting models of retail rents."Environment and Planning
A 32.10 (2000): 1825-1839.

Capital IQ. Columbia Sportswear Company and Peers. Retrieved 26 Oct. 2016 from
https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=384300

"COLM Key Statistics | Columbia Sportswear Company Stock - Yahoo Finance." COLM Key Statistics
| Columbia Sportswear Company Stock - Yahoo Finance. Yahoo, n.d. Web. 26 Oct. 2016.

Columbia Sportswear Co. (2016) 2015 10-K form. Retrieved from capitaliq.com

"Columbia Sportswear Co." COLM Executive Compensation. Morningstar, n.d. Web. 1 Nov. 2016.

"Columbia Sportswear Co (COLM.O)." Reuters. Thomson Reuters, n.d. Web. 04 Nov. 2016.

"Columbia Sportswear Co." COLM: Top Competitors and Peers. Morningstar, 03 Nov. 2016. Web. 03
Nov. 2016.

"Columbia Sportswear Company Reports Third Quarter and Year-to-Date 2016 Financial Results;
Updates Full Year 2016 Financial Outlook." Press Release Distribution, EDGAR Filing, XBRL,
Regulatory Filings. BusinessWire, 2016. Web. 26 Oct. 2016.

Compustat Fundamentals [Annual Data]. (2001-2016). Available: Standard & Poor's/Compustat. 26 Oct.
2016. Retrieved from Wharton Research Data Service.

Cordell, H. Ken. Outdoor Recreation Trends and Futures: A Technical Document Supporting the Forest
Service 2010 RPA Assessment. Tech. U.S. Department of Agriculture Forest Service, Mar. 2012. Web.
26 Oct. 2016.

Damodaran, Aswath. "Cost of Capital by Sector (US)." Cost of Capital by Sector. New York University,
Jan. 2016. Web. 26 Oct. 2016.

Laudani, Chris. "Columbia Sportswear Will Keep Investors Warm This Winter." The Street. The Street,
27 Oct. 2016. Web. 31 Oct. 2016.

Manning, Jeff. "Columbia Sportswear Reports Tough Quarter." The Columbian. The Columbian, 28
Oct. 2016. Web. 31 Oct. 2016.

Ohmes, Robert, Jadrosich, Rafe, OHare, Daniel. Active Lifestyle Brands. Bank of America Merrill
Lynch -. N.p., 30 Sept. 2016
27
 Security Analysis Competition Fall 2016 November 9, 2016

Parham, Ron. "Columbia Sportswear Company Reports Third Quarter and Year-to-Date 2016 Financial
Results; Updates Full Year 2016 Financial Outlook." Columbia Sportswear Company -. N.p., 27 Oct.
2016. Web. 03 Nov. 2016.

"Resource Center." Daily Treasury Yield Curve Rates. Department of the Treasury, 26 Oct. 2016. Web.
26 Oct. 2016.

28